On December 13, EBRI will hold its 71st biannual policy forum, “’Post’ Script: What’s Next for Employment-Based Health Benefits?” It is a question that has been on the mind of employers, lawmakers and policymakers alike for some time now. It predates the time that the structure for the Patient Protection and Affordable Care Act (PPACA) was put in place, has evolved, but not been resolved, as regulations were, and continue to be issued subsequent to its passage. It has remained on the minds of employers, providers, and policymakers following the various courts’ assessment of the various challenges to the constitutionality of the law, and even as the nation went to the polls last month.

Today we know more than we once did about certain aspects of the law, its provisions and applications.¹And yet there is much yet to know about its broader implementation: How the insurance exchanges might work,² for example, or how their presence might affect or influence cost, access, or employer plan designs. Will employers step away from their traditional role in providing these benefits, or will these changes lead to an environment in which employers find them to be of even greater value to their retention programs and strategies? In addition, an overarching concern at present—not just for health benefits, but workplace benefits overall—is the potential impact that changes in tax policy³ could have on these programs, both direct and indirect.

Our next policy forum will bring together a wide range of national experts on U.S. healthcare policy to share a post-election perspective on fiscal impacts from the federal budget, findings from the EBRI Center for Research on Health Benefits Innovation, and a sense of how employment-based health benefits might evolve as a result of the changes set to come.

In a field as complex and sensitive as healthcare policy, we may not always know “what’s next”—but it’s our hope that the information, and interaction, at the EBRI policy forum will provide insights and clarity that can help.

EBRI’s 71st biannual Policy Forum will be held on Thursday, Dec. 13, from 9:00 a.m.–12:30 p.m. at the Henry J. Kaiser Family Foundation, 1330 G Street NW, Washington, DC 20005. The agenda and registration information are available online here. For those not able to attend in person, a free live webcast of the policy forum will be provided by the International Foundation of Employee Benefit Plans, online here.

Notes

¹ A summary of EBRI Research on PPACA and its Potential Impact on Private-Sector Health Benefits is available online here. Of specific topical interest are:

Last week the Wall Street Journal reported that Sears and Darden Restaurants were planning a “radical change in the way they provide health benefits to their workers,” giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace, or exchange1. “It’s a fundamental change,” EBRI’s director of health research, Paul Fronstin, noted in the WSJ article.

Indeed, this is the time of year when many American workers – and, by extension, most Americans – will find out the particulars of their health insurance coverage for the following year. For most, the changes are likely to be modest. And, based on the 2012 Health Confidence Survey (HCS), not only do most Americans seem to be confident in those future prospects, they would seem to be satisfied with that outcome.

More than half of those with health insurance are extremely or very satisfied with their current plans, and a third are somewhat satisfied. Nearly three-quarters say they are satisfied with the health benefits they receive now, compared with just 56 percent in 2004.

Dissatisfaction, such as there is to be found, appears to be focused primarily on cost; just 22 percent are extremely or very satisfied with the cost of their health insurance plans, and even fewer are satisfied with the costs of health care services not covered by insurance. Perhaps not surprisingly, about one-half (52 percent) of Americans with health insurance coverage report having experienced an increase in health care costs3 in the past year, though that was the lowest rate since this question was added to the survey in 2006.

The HCS found that confidence about various aspects of today’s health care system has remained fairly stable2 – and undiminished either by the passage of, or the recent Supreme Court decision on, the Patient Protection and Affordable Care Act (PPACA); more than one-half (56 percent) of respondents report being extremely or very confident that they are able to get the treatments they need, and another quarter (27 percent) report being somewhat confident. Only 16 percent of 2012 HCS respondents said they were “not too” or “not at all” confident that their employer/union would continue to offer health insurance for workers – though that was more than twice as many as expressed that level of concern in 2000.

While respondents were generally supportive of the measures broadening access and/or choice in the PPACA, nearly two-thirds said they hadn’t yet noticed any changes to their health insurance – and among the 31 percent that had, 70 percent said the changes were negative, including impacts such as higher premiums, higher copays, and reduced coverage of services.

Despite a falloff from previous surveys, more than two-thirds (69 percent) of employed workers said that benefits were “very important” in their employment decision, with health insurance topping the list of those important benefits by an enormous margin. Nearly six out of 10 said that health insurance was the most important employee benefit, as has been the case for some time now.

All of which reinforces that, while many see room for improvement in the current system, those that have employment-based health insurance now like it, and want to keep it.

It will be interesting to see if, in the months and years ahead, they get that wish.

Notes

More information from the 2012 Health Confidence Survey (HCS) is online here. The HCS is sponsored by EBRI and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm, and made possible by the generous support of the HCS underwriters, listed here.

2Asked to rate the health care system, survey respondents offered a diverse perspective: 17 percent rated it either “very good” or “excellent,” 28 percent consider it to be “good,” 28 percent say “fair,” and 26 percent rate it “poor.” However, the percentage of Americans rating the health care system as poor doubled between 1998 and 2004 (rising from 15 percent to 30 percent).

3Of more than passing concern is the finding that among those experiencing cost increases in their plans in the past year, nearly a third had decreased their contributions to retirement plans, while more than half have decreased their contributions to other savings as a result.

The uninsured rate for working-age Americans ticked down in 2011, but only because public program coverage grew faster than employment-based health insurance coverage declined, according to a new report by EBRI.

While employment-based health coverage is still the dominant source of health insurance in the United States, it has been steadily shrinking since 2000. The latest data show that it continued to do so last year.

The EBRI analysis finds that the percentage of the nonelderly population (under age 65) with health insurance coverage increased to 82 percent in 2011 (up about half a percentage point from 2010), which is notable since increases in health insurance coverage have been recorded in only three years since 1994.

However, different trends are taking place behind that overall result: Among the nonelderly population, employment-based coverage is trending down (58.4 percent had employment-based benefits in 20011, down from the peak of 69.3 percent in 2000), while public-program coverage is trending up (accounting for 22.5 percent of the nonelderly population, up from the low of 14.1 percent in 1999).

Enrollment in Medicaid (the federal-state health care program for poor) and the State Children’s Health Insurance Program (S-CHIP) increased to a combined 46.9 million in 2011, covering 17.6 percent of the nonelderly population, significantly above the 10.2 percent level of 1999. Other sources of public health insurance include Medicare (which covers many disabled as well as the elderly), Tricare, CHAMPVA, and Veterans Administration (VA) health insurance.

Full details of the EBRI report, “Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey,” are published in the September 2012 EBRI Issue Brief, no. 376, online at www.ebri.org The report is based primarily on the March 2012 Current Population Survey (CPS) conducted by the U.S. Census Bureau, with some analysis based on other Census surveys.

The recent U.S. Supreme Court decision upholding the constitutionality of the Patient Protection and Affordable Care Act (PPACA) appears to have had little impact on Americans’ confidence about their health care, according to a new report by EBRI.

“Public confidence about various aspects of today’s health care system has remained fairly level both before and after the passage of the health care reform law,” said Paul Fronstin, director of EBRI’s Health and Education Research Center and author of the report. “The Supreme Court decision did not change how people view the system.”

Data from the EBRI/MGA 2012 Health Confidence Survey (HCS) show that two years after passage of the Patient Protection and Affordable Care Act (PPACA), implementation of a number of provisions in the legislation, and three months after the Supreme Court upheld the law, Americans offer a diverse perspective: 28 percent consider the nation’s health care system to be “good,” 28 percent say “fair,” and 26 percent rate it “poor,” while 12 percent rate it very good and 5 percent say it is “excellent.”

Fronstin noted that, in contrast with the ratings for the health care system overall, Americans’ rating of their own health plans continues to be generally favorable—more than half of those with health insurance are extremely or very satisfied with their current plans, and a third are somewhat satisfied.

On the other hand, just 22 percent are extremely or very satisfied with the cost of their health insurance plans, and only 16 percent are satisfied with the costs of health care services not covered by insurance. Among those experiencing cost increases in their plans in the past year, 31 percent state they have decreased their contributions to retirement plans, and more than half have decreased their contributions to other savings as a result.

The report, “2012 Health Confidence Survey: Americans Remain Confident About Health Care, Concerned About Costs, Following Supreme Court Decision,” is published in the September EBRI Notes, available online at www.ebri.org The HCS examines a broad spectrum of health care issues, including Americans’ satisfaction with health care today, their confidence in the future of the health care system and the Medicare program, and their attitudes toward health care reform.

Federal health care reform legislation and the desire of employers to limit their health insurance costs are likely to fuel interest in so-called “defined contribution” health benefits and private health insurance exchanges, according to a new report by EBRI.

The EBRI report says the combination of insurance market reforms, especially the health exchange structure in the Patient Protection and Affordable Care Act of 2010 (PPACA), as well as rising health costs, have brought a renewed focus on limiting employer’s health care cost exposure.

Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report, said the vehicle that some employers are interested in using for providing coverage is a private health insurance exchange. Through these exchanges, in tandem with a defined contribution (DC) funding approach, employers can accelerate the drive toward a more mass- consumer-driven insurance market and gain more control over their health care contribution costs, capping their contributions, and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance.

“Ultimately, whether and how the movement to private health insurance exchanges and DC health plans will occur is still subject to various influences and remains highly uncertain,” Fronstin said. “But the enactment of PPACA and employers’ interest in reducing the risk of their health benefit costs indicate this is a field that is likely to grow.”

EBRI notes that employers have long been interested in the concept of DC health benefits, but never moved in that direction for a number of reasons, both because they were hesitant to drop group coverage in favor of individual policies, and because they were concerned that many employees would not be able to secure coverage in the individual market. Recently, however, the combination of insurance market reforms and the embodiment of the exchange structure in PPACA has brought a renewed focus on an approach that limits employers’ health care cost exposure by providing fixed-dollar contributions that workers could use to purchase individual policies.

The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which includes a broad range of public, private, for-profit and nonprofit organizations. For more information go to www.ebri.org or www.asec.org

Most employers find that while they would like to continue providing health benefits to employees and their dependents, longer-term cost trends are unsustainable. Those trends, combined with the forthcoming decision by the Supreme Court of the United States (SCOTUS) on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) (in whole or in part – notably the individual mandate), and uncertainty related to the future of health care delivery and financing in the United States are causing many employers to start to rethink their role as a provider of health coverage in the workplace.

While there is a possibility that the entire law could be declared unconstitutional, most of the controversy surrounding the PPACA has involved the law’s requirement that individuals either purchase insurance or pay a penalty, the so-called “individual mandate.” There are basically four ways1 in which SCOTUS might rule on the constitutionality of this provision in the PPACA:

Rule that the individual mandate is constitutional and let implementation of the law proceed;

Rule that the individual mandate is unconstitutional, but that the individual mandate is severable and therefore implementation is allowed to proceed with all other parts of the PPACA;

Rule that the individual mandate is unconstitutional but severable from the remainder of the law, but discards other connected parts of the PPACA, such as guaranteed issue and community rating;

Rule that the individual mandate is unconstitutional, and that the individual mandate is not severable from the PPACA, therefore the entire PPACA is found to be unconstitutional.

As of this writing, only the justices know the decision, but speculation (and odds making) is occurring on a daily basis. It is unlikely that the court would strike down the individual mandate and discard other connected parts (option 3 above), because it does not have the equivalent of “line-item” veto power of laws passed by Congress. If the ruling finds the mandate severable from the rest of the law (option 2 above), Congress will inevitably try to fix the PPACA, but it is impossible to predict what the fix may look like given the current political climate and the potential for political gridlock regardless of the outcome of the next election. If the court rules that the law is unconstitutional (or that the individual mandate is, and is inseparable from the rest of the law, necessitating its rejection), the status quo of the past will return, but with a potential nightmare scenario where the parts of the PPACA that have already been implemented would need to be “unimplemented” (such as funding provided to the states to establish exchanges, or the deductibility of health care coverage offered to the newly created category of adult dependents under the PPACA that would ostensibly now be subject to taxation), potentially triggering numerous lawsuits and additional political ill will.

While health care reform discussions that ultimately led to the passage of the PPACA started out as discussions regarding system reform that would result in lower health care costs, they quickly morphed into discussions about coverage that largely ignored the overall cost of health care services and health insurance coverage. Thus, regardless of the outcome of the Supreme Court decision, or the fall elections, health care costs are expected to continue to increase in the future.

What Will Employers Do?

If employers go down the current road they are on and stay with the status quo, we will likely continue to see cost-shifting to workers and the introduction of and experimentation with carrots and sticks in order to change the health behaviors of workers and their dependents.

However, were employers to decide to move away from traditional employment-based health coverage, there are a number of alternative approaches they might consider:

1) De-link health coverage from work. Employers might endorse a system where they have absolutely no connection to health coverage. Some have proposed a single-payer system, and others have proposed a purely individual market; there are precedents for both. Medicare began as the equivalent of a single-payer system for health coverage for seniors but has since evolved into a hybrid public-private partnership, as private plans are an alternative for Medicare beneficiaries. The private-plan part of Medicare could be expanded to move away from the predominant single-payer-system aspect of Medicare to one that looks more like an individual market (such as that contemplated in the proposal put forth by Congressman Paul Ryan (R-Wisconsin)). Under a single-payer system alternative to the current employment-based system, employers would no longer provide coverage. Instead, either the federal government or the states would provide coverage, with financing provided through some type of tax. Alternatively, a purely individual market might look very much like the exchanges contained in the PPACA, with subsidies for low-income workers, or a voucher-type system (also as proposed by Congressman Ryan for Medicare). Financing for either would come from some type of tax system as well.

2) Re-define the link between health coverage and work. Employers have been interested in the concept of “defined contribution” for years as a way to provide health coverage to workers. While there is no one way in which to define such a concept, presumably it would work in a way in which employers are able to better control or “define” their contribution towards health coverage. Under that scenario, public exchanges as described in the PPACA could be the vehicle through which workers would get their coverage, with employers either paying some kind of coverage charge (such as the $2,000 penalty included in the PPACA), or the employer may itself seek to make coverage arrangements through third-party private exchanges. Such a system may or may not produce short-term cost savings to employers, depending on individual specifics of how employers transition to such a system, but could provide long-term savings if employer contributions do not rise as fast as premiums would otherwise have grown, or if premium growth is flat (due to the more market-driven system). In such a system, employers would no longer be involved in decisions regarding the design of health care. Rather, they would simply provide the funding mechanism for workers to purchase health coverage through a party separate from the employer. Employers have shown interest in this concept in the past through position papers published by the CED and the ERISA Industry Committee as recently as 2007. Moving towards these private exchanges would not require a change in law, regardless of the SCOTUS decision, and would be permitted under current law unless prohibited by a future Congress.

After three+-plus years of contentious debate and the challenges associated with understanding and attempting to comply with the new law, it seems that employers are at a crossroads: try to continue with the current employment-based system of health coverage, or undertake to try to fundamentally redefine the system that the United States has essentially lived with since World War II.

It is unlikely that employers will simply take the fork when they come to it in the road.

Notes:

1. There is, of course, also the possibility that SCOTUS will remand the issue of severability back to the lower court, tying up the PPACA in court for a longer period of time, creating more uncertainty, but basically leaving things in play for the time being.

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EBRI Perspectives serves to supplement EBRI’s regular publications, and allows EBRI to provide observations based on our research, as well as on questions that we get from news reporters, policymakers, and others.
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